House price falls will hit the London market too, warns City expert

As new figures show central London prices have dropped by £27,000 in the last two months alone, Roger Bootle, one of the City's most respected economists, said prices - already jittery following the Northern Rock crisis - could follow the example of the United States and Ireland and drop significantly further during next year and 2009.

Mr Bootle's forecast is nationwide, but Ed Stansfield of Mr Bootle's Capital Economics consultancy said London will not escape the squeeze because City bonuses - a key factor in the strong growth over the last decade - are in jeopardy.

"It is City workers who are at most immediate risk of losing their jobs or seeing their bonuses cut as a consequence of the credit crunch," he said.

"Foreign buyers may still prop up the very top of the market, but even they must be thinking again before forking out tens of millions of pounds.

"At the other end of the scale, London also has one of the largest subprime markets in the country, with people on benefits having been encouraged to take on expensive mortgages and now facing repossession.

"So outside the very top end of the market, I'd expect to see average prices in London drop by two to three per cent next year."

Meanwhile, a second report published today shows that central London house prices are already on the wane.

Online agents Primelocation.com found that prices fell by by 1.3 per cent last month, following a similar fall in August.

The result is a total average drop of £27,000 in two months, reducing the annual price increase to 23 per cent, down from 31.8 per cent in June.

Primelocation has also found the number of properties on the market is more than 30 per cent higher than a year ago.

The only areas which are bucking the trend are Mayfair (up 10 per cent since July); St John's Wood/Regent's Park (up 6.2 per cent in September); Marylebone/Fitzrovia/Soho/Covent Garden (up 2.3 per cent).

The biggest losers were Holland Park/Notting Hill (down 9.4 per cent since July) and Chelsea (down 6.7 per cent).

In the best suburbs, prices in Hampstead Garden Suburb/Golders Green fell by 11.6 per cent last month and in Wimbledon they fell by 10.6 per cent. These falls equate to an average price fall of more than £100,000.

The prediction comes days after the average property price in London rose above £300,000 for the first time.

The market appeared to have shrugged off last month's Northern Rock debacle according to two separate surveys.

The figures reported last week from Nationwide Building Society and Halifax showed prices rose rapidly during the summer. Nationwide said the annual rate would be 16.5 per cent wile the Halifax's figures put it at 18.3 per cent.